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Brazil’s Vale invests to get around Chinese megaship ban

Brazilian diversified mining major Vale, the world’s number two mining group in terms of market capitalisation, has announced that it is to establish a second floating iron-ore transfer station, in Subic Bay, in the Philippines. This station will transfer iron-ore from the miner’s giant Valemax bulk carriers to smaller Capesize and Panamax ore carriers, which will then convey the ore to ports in China. The first of these floating transfer stations, also in Subic Bay, started operations in February and cost the Brazilian group $52-million.

The Valemax ships are the largest bulk carriers in the world. Each of them has a length of 362 m, a beam of 65 m and is able to carry 400 000 t of iron-ore. Each Valemax can carry three times the cargo of a Capesize bulk carrier – Capesize ships currently carry 80% of the world’s seaborne iron-ore.

Vale has ordered 35 Valemax ships, of which eight have been delivered. But Chinese shipowners, alarmed by the competitive threat they pose, have persuaded the Chinese authori- ties to ban them from that country’s ports.

The floating transfer stations are Vale’s response. They allow the company to deliver its iron-ore some 85% of the distance from Brazil to China on board the more cost-efficient Valemax ships, and then conclude the last 15% on the smaller vessels.

In addition, Vale has an operational land-based distribution centre in Oman and is building a second such centre in Malaysia. Together, these floating transfer stations and the distribution centres will be able to absorb the total capacity of all 35 Valemaxes, which comes to 60-million tons of iron-ore a year.

However, Chinese steelmakers, eager to benefit from the cost reductions the Valemax ships could bring, are reported to be pressurising the Chinese government to lift the ban on the vessels. One of the first Valemax ships successfully docked at Dalian last year, before the ban was imposed.

Moreover, nearly half of the Valemax ships – 16 out of 35 – are being built in China by Rongsheng Heavy Industries, an order worth $2.1-billion. (The rest are being built in South Korea. One of the South Korean ships recently developed cracks in its hull on its maiden voyage, but Rongsheng states its ships are very safe.) Not all the Valemax ships will be owned by Vale, but those that are not owned by the group will be on long-term lease to it.

Should the Chinese government change its policy and allow the Valemax ships into its ports, this will not render the floating transfer stations superfluous. As each transfer station is actually a modified bulk carrier, they will simply be moved to new locations to serve other markets in Asia and South-East Asia. The development and deployment of the Valemax ships has had a severe impact on the value of Capesize vessels. The website VesselsValue.com last month reported that new Capesize ships that had been worth $69.9-million in April 2010 were now worth $39.9-billion. The website also reported that, as a result of the Chinese ban, the value of Valemax ships had fallen by 36%. But, for Vale, it is the value of the iron-ore and the utility of the ships that are important; the book value of the vessels is a secondary issue.

Meanwhile, closer to home, the Brazilian miner’s Mozambican operation has ordered 33 200 railway sleepers from agriculture and forestry company Montara Continental, which operates in Mozambique and Tanzania and is 75%-owned by the British Obtala Resources group. The railway sleepers will be delivered over the next seven months and will be used in the upgrading of Vale-owned railways in Mozambique and Malawi and in the construction of a new line in Malawi.

By: Martin Creamer
The earnings of South African iron-ore major Kumba plummeted in the six months to June 30 accompanied by a shattering of the iron-ore price, the closing of Thabazimbi mine, a rejigging of the remaining mines and a decision not to declare an interim dividend in a company that has been a long-standing dividend play. Headline earnings were 61% lower at R2.5-billion, compared with R6.5-billion in the corresponding six months of 2014. →